Honda Motor Co. raised $2.75 billion in bonds meant to benefit the environment for the first time, joining its competitor Ford Motor Co. in tapping the booming world of sustainable finance to fund a transition to electric vehicles.
The Tokyo-based automaker sold dollar-denominated green bonds in three parts, according to a person with knowledge of the matter. The longest portion of the offering, a 10-year security, yields 1.12 percentage points above Treasuries after an initially discussed level of as high as 1.4 percentage points, said the person, who asked not to be identified as the details are private.
It marks the company’s first green bond deal, a company spokeswoman said last week. The offering is one of the largest green bonds to be issued by a corporation in the U.S. high-grade market, according to data compiled by Bloomberg.
Honda intends to allocate an amount equal to the net proceeds from the note issuance to a range of new eligible green projects that includes manufacturing electric cars, solar and wind along with investments in recycling used vehicle parts, according to a bond prospectus. Ford sold $2.5 billion of debut green bonds in November as it transitions to making electric vehicles, the largest ever such offering from a U.S. corporation.
“I do think we’ll see more automotive green bonds,” said Anne van Riel, head of sustainable finance capital markets for the Americas at BNP Paribas SA, which helped manage Ford’s green bond sale.
Companies and governments are rushing to the green bond market to finance all kinds of environmentally-friendly initiatives. Global sales of green bonds hit a record $513 billion last year, according to data compiled by Bloomberg. Climate Bonds Initiative estimates annual sales could reach fresh highs of between $900 billion and $1 trillion by the end of this year and as much as $5 trillion by 2025.
More sectors participating in the green bond market in a “more robust manner” is a sign of a maturing market, according to Stephen Liberatore, head of ESG and Impact for Global Fixed Income at investment management firm Nuveen, which oversees $1.3 trillion globally. Liberatore, who manages about $18 billion in sustainable assets, including green, social and sustainability bonds, expects more automakers to follow.
“As someone who’s investing in this space, the deeper and wider opportunity set is a real big positive especially as an active total return portfolio manager,” Liberatore said in a video interview on Thursday. “These are the types of things we really want to see.”
Honda, which is halting exports of cars and motorcycles to Russia, was the first of Japan’s automakers to state publicly it will phase out sales of gasoline-powered cars completely. The firm set 2040 as the goal, giving newly minted Chief Executive Officer Toshihiro Mibe a once-in-a-career chance to put his stamp on a firm that can trace its lineage back 84 years.
JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Morgan Stanley managed the bond sale, the person said.
-By Caleb Mutua (Bloomberg)